End of credit, rising imports hammer lumber prices

f, s r-uuneR PRICES retreat to la,lows for the year, calls for production to again conform to current demand levels are growing. This is reminiscent of 2008 and 2009, when the long slog to bring production and consumption into balance was occurring. Eventually, in the latter half of 2009, a balance was restored.

Now that the housing stimulus in the form of homebuyers tax credits ended April 30, demand is wavering. The pace of housing starts and permits has the appearance of slowing, builders are less confident about what the future holds, and the real estate industry is forecasting a two to three month period in which home sales will decline. Within the wood products industry, reports of a downturn in the business climate surfaced early in the second quarter.

As to whether the homebuilder tax credit worked, it would be hard to argue against its success in the short term. Home construction was stimulated, certainly more than what the industry expected. Due in large part to the stimulus, lumber consumption increased and so, too, did lumber prices, giving producers and the distribution chain a long-awaited dose of price volatility and profitability.

It is also within reason to argue that results from the tax credit, estimated at around $35 billion, fell short of the cost. For example, the National Association of Realtors estimates that out of the 4.4 million homes purchased during the stimulus period, only I million were purchased because of the stimulus. In other words, $27 billion was spent on sales that would have occuned without the stimulus.

It is widely believed that the tax credit helped limit inventories of unsold houses in the market, which helped stabilize home prices. A stabilization of home prices in turn limited the loss of equity in homes. Some estimates show the stimulus savine $2 trillion in homeowner equity, equating to an average of about $21,000 per homeowner.

As for home construction, it appears the market has stalled, despite affordability figures that are quite favorable. Future buying and construction was likely pushed forward by the tax credits, giving the appearance of a sustainable upward trend. For instance, new home sales in May totaled just 300,000 units on an annualized basis-32.7Vo below the April Census Bureau figure of 446,000.

Within the industry, signs of a troubled economy, even while housing starts increased, were evident in the western red cedar market. Even after significant cutbacks in production over the last couple of years, demand has lagged. Not as strongly tied to housing starts as other species. consumer spending on deck and other outdoor projects remains limited.

In southern pine treated lumber, sales have stagnated since May, a time when buying is usually in full swing. Treaters report that their sales in May and June were down lO-ZOVa compared to the same months last year. Disappointing treated wood sales played a large role in the steep and extended downturn in southern pine lumber prices. Even sales surrounding the Memorial Day holiday, typically a big weekend for big box store sales, were below expectations for treaters.

The slower pace of consumption is not the only factor driving down fram- ing lumber prices. Traders are pointing to June's increase in Canadian lumber exports into the U.S. as a contributing factor. Their premise is not only are buyers seeing more imports ship into the states in June, they also expected in May that imports from Canada would multiply this month. Therefore, it is the well-founded stance of traders that even the perception of greater supplies available in June helped stifle demand in May.

Actually, a strong connection exists between two of the largest factors influencing lumber prices over the past few months: the U.S. government's housing stimulus and increased imports from Canada. Simply put, the homebuyer tax credit helped stimulate demand beyond production levels, pushing lumber prices higher. Elevated prices led to the elimination of duties on Canadian softwood lumber exports for June.

Canadian exporters, taking advantage of the suspension of export taxes, are now shipping at a pace of nearly 1.0 billion bd. ft. into the U.S. for the month, far exceeding the pace set in either April or May. Again, it is a widely held perception within the industry that those volumes entering the U.S. from Canada are now having a negative influence on pricing.

The big question from here forward is whether the housing market can stand on its own two feet without the crutch of more government spending. Whether the tax credit was successful is certainly debatable, but it is clear that the underlying economy was not strong enough to gather much momentum from the stimulus.

- Gary Zauner is editor of Crow's Weekly Market Report, the longest-running source of prices in the North American lumber and panel industry. Reach him at gzauner@risi.com or sign up for a free trial subscription at wwtr. risiinfo.com/crows.

Piedmont Parts with LastYard

Piedmont Lumber auctioned off trucks, office equipment, and fittings at its closed yard in Pittsburg, Ca., and sold its last operational store, in Lakeport, Ca., to four-unit Mendo Mill & Lumber. Ukiah. Ca.

"As soon as possible, we'll reopen," said Mike Mayfield, Mendo's president and c.e.o. "Our goal is to retain as many staff as possible."

Just five months ago, Piedmont was operating five locations. Then on March 1, its lender, Umpqua Bank, filed judicial foreclosure actions against the company's properties. Less than two weeks later, a fire destroyed its yard in Walnut Creek, Ca. The blaze is still being investigated.

A week later, Piedmont sold its Oakland yard to Economy Lumber, Oakland. Its truss plant in Calpella, Ca., closed March 31, with its equipment auctioned off Aug. 12.

Piedmont retains its properties in Walnut Creek as well as in Pittsburg, which has been used as the company's headquarters since the yard was damaged by fire last summer. A Piedmont spokesperson said that former owner Bill Myer Jr., son of the founder, is in discussions with his insurance carrier and the city about rebuilding a home center in Walnut Creek.

UniversalTruss Pulling out of Southern California

Universal Forest Products is closing its Universal Truss plant in Fontana, Ca., and will no longer provide trusses to the Southern California market. The facility will be retained "for possible future business."

"Based on market and economic conditions in Southern California that we believe will prevail in that region for a while, we made the difficult decision to temporarily close our

Fontana operations," said Lynn Afendoulis, director of corporate communications. "Our intent is to close down by mid-September."

Universal acquired the plant from Gang-Nail Components in 2000. Some personnel are expected to transfer to UFPI's facility in Riverside, Ca.

UFPI will continue supplying trusses to Northern California from its facility in Riverbank, Ca.

Mid-Golumbia Goes Bigger

Mid-Columbia Lumber Products, Madras, Or., has acquired a former boat manufacturing plant in Culver, Or. After renovation, all production will move to the 200000-sq. ft. mill.

"We needed to look at all our options to most efficiently operate and provide value and logistical access to our customers," said Tim Stovall, president and general manager.

A $204,084 matching grant helPed fund improvements to its rail spur and siding to allow shipment of finished products.

Blaze Hits Utah Yard

Roof repair work at Colonial Building Supply, Centerville, Ut., sparked a July 26 fire that destroyed the main building and offices. Quick response from firefighters saved the warehouse, and no one was injured.

A passerby spotted the flames at approximately 6 p.m., called 911, and alerted two Colonial employees who were closing up the store. Within an hour, the store was roaring with flames and fire crews battled the blaze through the night.

By the next morning, employees were cleaning up the mess and handling orders from temporary offices in the parking lot.

Owner Fred Hale plans to rebuild as soon as possible.

Sutherland Lumber Co. is tiquidating its 38-year-old yard in Boulder, Co, The 5.6-acre site is site is located in an area being rezoned by the city to accommodate new office, retail and residential development, so the 14,000sq. ft. buiUing likely will be converted into office space.

Friedman's Home lmprovefl€llt tentatively agreed to build an 80,000-sq. ft. store with drive-thru lumberyard and 20,000-sq. ft. garden center in Petaluma, Ca.

lrvine Ace Hardwoto, lrvine, Ca,, is closing after 29 years, 18 at the current location.

Owner Scott Thoele has been offered a job at Woodward's Ace Hardware, Santa Ana, Ca.

Home Depot is stillwaiting for right-of-way and easement appraisals for a planned store in Grants Pass, Or.

Lowe's opened a new 103,000sq. ft. home center June 25 in NW Las Vegas, Nv.; hopes to complete a 117,000-sq. ft. store with 32,900-sq. ft. garden center in Oxnard, Ca., in 1st quarter 2012, and has begun building a 117,000-sq. ft. store in lwilei (Oahu), Hi., next to a Home Depot.

Lowe's is buying a site in Rohnert Park, Ca., to start construction in the spring; received the planning commission's blessing to build a 153,974-sq, ft. store on 16.65 acres in Carlsbad, Ca., and is still awaiiing approvalto build on old airport property in Clearlake, Ca, Pinal Lumber & Hardware, Globe, Az., was named Business of the Year by the local Chamber of Commerce.

Explosion Rips Alaska Mill

Icy Straits Lumber & Milling, Hoonah, Ak., is looking to rebuild on a smaller scale after a July 22 fire and explosion destroyed its primary milling operations.

Investigators linked the major damage to "dust explosions from sawdust material that had accumulated in the mill structural elements." They are unsure what caused the dust to ignite, but said an ember could have been smoldering undetected for up to two days before igniting.

Secondary manufacturing operations, including dry kilns, moulder and planer, were spared.

Codes Undo Green Supplier

Building code violations are forcing an environmental-minded building supplier to find a new home.

Over the past l2 years, Whole House Building Supply & Salvage, East Palo Alto. Ca.. has accumulated a diverse inventory of salvaged doors, cabinets, roofing, lighting, plywood, bathroom fixtures, slabs of granite, and more. There's also a compost pile, vegetable garden, and gallery of progressive political posters and fliers.

But owner Paul Gardner now has to pack them all up, blaming building and fire officials for cracking down on long-time code violations. He said it would cost $200,000 to $250,000 to make the required improvements, including installing seismic safety upgrades. fire prevention equipment. and a permanent bathroom.

"It's true that their job is to be concerned about the code," said Gardner.

"But it's a particularly bad time with the economy to demand that your local green business make these extremely costly upgrades. We certainly don't have the money to do it now."

Gardner has given his landlord notice that he will vacate by September and is negotiating to possibly lease a new site in Redwood City, Ca.

Oregon Bookkeeper Panched

A bookkeeper was sentenced to four years of prison followed by eight years of supervision for embezzling nearly $500,000 from Marine Lumber, Tualatin, Or., over a three-year period.

Faye Louise Clemens, 65, allegedly wrote company checks for cash and pocketed the money. During the trial, her attorney blamed her behavior on a gambling problem.

Labor Board Hits Lowe's DC National Labor Relations Board investigators have uncovered evidence suggesting that Lowe's DC in Perris, Ca., may have threatened and fired three employees in 2007 and 2008 because they were interested in joining the Teamsters union.

Lowe's is also accused of interrogating workers about their union activities and searching lockers and lunch pails for union-related materials. However, investigators found insufficient evidence of almost 20 other accusations of labor law violations.

Employees at the warehouse rejected union membership in 2006 by a vote of 450 to 325. Ot the company's 238,000 total employees, none are union members.